UPDATE: Yelp Upgraded by Citigroup, U.S. Penetration Only at 3% - Yelp (NYSE:YELP)

Shares of

YelpYELP

are up three percent to $64.90 in Wednesday's pre-market trading after being upgraded by Citigroup from Neutral to Buy. Analyst Mark May's upgrade is based on five reasons:

Recent technical pullback “creates a buying opportunity.”
Confident in near to long-term forecasts, and increased out-year estimates due to new total addressable market (TAM).
Yelp is “early in penetrating its “serviceable TAM and, thus, can generate a 32% revenue CAGR over the next five years.”
May estimates a 56% 5-year adjusted earnings per share CAGR given “TAM/revenue outlook combined with the inherent margins of the business model.”
Yelp has strong strategic position in mobile and local Internet, an increasingly important segment.

The Citi analyst estimates the TAM in the U.S. is 2.2 million and 2.1 million in Europe. “Even at these levels, we estimate Yelp's U.S. penetration at only 3% and note that it only recently began to unlock opportunities in the UK/Europe,” May added. May mentioned some risks for investors to consider such as the high premium growth valuation, fierce competition and new initiatives like international expansion not meeting Street expectations. The analyst has a $76 price target on the stock, which represents 17 percent upside from current levels.

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